Gateway to Lay Off More Than 2,400 on Slumping PC Sales
PC maker Gateway Inc. said Thursday it will lay off more than 2,400 workers, or about 10% of its staff--the first major casualties resulting from the wrenching slowdown in computer sales.
San Diego-based Gateway, the No. 2 direct seller of PCs, said its profit for the quarter, which included the holiday season, was down 70% compared with 1999--severely below its already reduced estimates. The company’s stock fell as much as 15% on the news.
More than half of the layoffs are expected to be in Gateway’s U.S. operations. Gateway has about 1,200 employees in California, including about 800 in Orange County and 400 in San Diego.
Gateway declined to specify where the cuts will take place because the affected employees have not been notified, spokesman John Spelich said.
“They will find out within the next couple of weeks,” Spelich said. “It won’t be all in one day, but it will be completed this quarter.”
The company said its profit from operations was $37.6 million, or 12 cents a share, in the three months ended Dec. 31, compared with a profit of $126 million, or 38 cents a share, in the last three months of 1999.
The results badly missed analysts’ estimates that the company would earn 37 cents per share, according to a survey by First Call/Thomson Financial.
Fourth-quarter sales fell to $2.37 billion from $2.55 billion in 1999.
The surprise earnings report, which came a week earlier than scheduled, indicated that things will get worse before they get better.
Slumping PC sales forced the company to slash prices, and “that will have negative consequences for the PC sector for the next six months,” said Gateway President and Chief Executive Jeff Weitzen.
As a result, Gateway told Wall Street it expects only 3% revenue growth in 2001 and operating-earnings-per-share growth of 6%.
Gateway had announced a fourth-quarter pretax charge of $187 million due to a write-down in its investments in technology companies and other assets. Including the charge, Gateway lost $94.3 million, or 29 cents per share.
Before the announcement, Gateway shares rose $2.96 to close at $22.90 in New York Stock Exchange trading Thursday. Shares fell to $20 in after-hours trading.
Gateway wasn’t the only technology company to warn of bleaker prospects on Thursday.
Hewlett-Packard Co. said slow spending by consumers and corporations will cause it to miss Wall Street forecasts. Profit in the quarter ending Jan. 31 will be 35 cents to 40 cents per share, below the 42-cent average estimate of analysts polled by First Call/Thomson Financial. Sales will see single-digit growth instead of the 15% growth Chief Executive Carly Fiorina had predicted, the company said.
Shares of Palo Alto-based Hewlett-Packard, the world’s second-largest computer maker, rose 63 cents to $32.38 in Nasdaq trading Thursday before the announcement. The stock dropped as low as $30.56 in after-hours trading.
Motorola Inc., which reported weaker fourth-quarter sales on Wednesday, said Thursday that the slowing economy would hurt its business in the first half of 2001 but that cost cuts and other measures should help improve performance in the second half.
The world’s No. 2 mobile phone maker said industrywide phone sales will be lower than expected this year. But analysts said the Schaumburg, Ill., company’s guidance for the first quarter of 2001 was in line with expectations. The company’s shares rose 94 cents to $22.13 on the New York Stock Exchange as investors breathed a sigh of relief.
Online advertising company DoubleClick Inc. warned that media revenue would decline 25% to 30% for 2001 versus last year because of reduced media spending by its clients. The New York-based firm forecast a pro forma loss of 7 to 9 cents per share in the first quarter, worse than the loss of 6 cents per share expected by Wall Street.
DoubleClick also said widening expenses pushed its fourth-quarter loss to $104.8 million, or 85 cents a share, compared with $42.1 million, or 38 cents per share, in 1999. Its shares fell $1.19 to close at $11.25 in Nasdaq trading Thursday.
*
Times wire services contributed to this report.
